Straight From the Source

Your City Tax Dollars At Work

By: City Administrator David Cameron

July 2010

In 2007 construction prices reached all time highs, and street construction was no exception.  The upswing in cost was driven by two key factors.  Contractors were busy and project bids were driven higher by demand, and the cost of oil was also escalating at a record pace. We were seeing prices at the pump as high as four dollars per gallon.  It became obvious that our dollar was not going to go far towards improving our transportation grid.  External factors were minimizing the value of the funds we had to spend on street projects.

Instead of letting skyrocketing costs limit our progress on needed street construction and improvements, the city proposed pledging the current one-cent sales tax street allocation towards a 5-year promissory note to speed up construction before prices rose to even higher levels.

In the meantime, an unexpected slowdown of street projects in our region and decreasing fuel prices worked to our advantage. The decision to issue a promissory note secured by our sales tax providing lump-sum funding of $8.99 million dollars for street construction resulted in the City having maximum street construction funding available when street construction costs dipped to their lowest level in years.  This turned out to be a very good benefit for the city; our street construction dollars were available for projects in a time period that maximized the value of those dollars.  In the past three years, we have constructed approximately 5 miles of new streets that likely would not have been possible without the sales tax and fortunate timing.

I am pleased to report that each of the projects funded by the one-cent sales tax has been completed. Through utilizing “arbitrage” interest principles where we were able to capitalize on the relationships between our expected return and the perceived risk surrounding the bond, the city earned an additional $483,322. The extra money helped us extend our focus even further on street construction than expected, and the $8.99 million sales tax note funded $ 9,473,322 worth of projects.

Several of the street projects we tackled required new approaches and innovative ideas to make them happen.  One example of this took place during phase two of Tahlequah Street construction.  There was a significant amount of property purchase required for this project. To help keep direct costs down we tried something new.  In return for being credited future street fees, property owners were given the option of donating the property needed for the project.  Most took advantage of this option and the result was $800,000 worth of donated property citizens didn’t have to pay for.  We were able to keep the costs of the project down and made the sales tax revenue stretch even further.

The sales tax also led to the reconstruction of several other key streets that required significant work and time. Hico Street formerly had narrow open ditch drop offs that were very dangerous.  Country Club Road was another street that presented challenges from a width and especially a drainage perspective. It turned out nicely and is now in great shape.  Carl Street is much improved as well.  Each of these streets needed significant modifications to bring them up to current standards.

Additional projects funded by the sales tax include the Dogwood Street extension, North Carl Street, and Lincoln/Main intersection. The sales tax allowed us to complete these projects and we were able to stretch our dollar further than we could have in any other way.

The promissory note payments from the sales tax street allocation will pay-off the note March 1, 2012.  The city will have some additional funding left over from the one-cent sales tax street allocation that will not be required for the note payments.  This money will be used in street milling and overlay projects on some of the older streets in town.

Considering the present state of the Gulf area and the unknown consequences of the oil spill, I think that additional challenges will likely soon result as increasing oil prices carry over into higher street construction costs. Working with city staff and the Board of Directors, we will continue to access the idea of future notes or bonds utilizing the existing sales tax. Prospective projects will be considered based on need, priority and the future growth of the city.